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Next Steps for Palm Post Pre Launch?

For the Palm Pre's launch, it was the best of times, it was the worst of times.

Now that the embattled handset maker's do-or-die smartphone is on sale, analysts see a number of challenges ahead both for Palm and the rest of the smartphone market.

While Palm (NASDAQ: PALM) may have wanted to have the Pre on store shelves before any new iPhones come out, the timing of the launch, two days before the Apple (NASDAQ: AAPL) developer conference, is being called a strategic mistake by industry watchers.

"Palm's launch of the Pre at Sprint revives Palm as a company and brand. Unfortunately, the timing just ahead of Apple's next iPhone launch limits Palm's time in the press spotlight," Avi Greengart, analyst at Current Analysis, told InternetNews.com.

Additionally, the limited supplies and the lack of any real marketing beyond pre-sale reviews is also being cited by mobile analysts as a dubious roll-out approach.

Sprint, the Pre's exclusive wireless carrier, ran out of inventory at some stores, putting customers on waiting lists, according to Bloomberg. And, while neither Palm nor Sprint are releasing sales figures, Jonathan Atkin, an RBC analyst, estimated that fewer than 100,000 Palm Pre devices were sold over the weekend, according to the Bloomberg report.

"Weak inventory levels and a relatively short -- and now very public -- exclusivity period mean that Sprint cannot use the Pre itself to draw subscribers from rivals," said Greengart.

However, Greengart says the Pre will prevail in resurrecting Palm as a competitor in the market again, though he believes the long-term success of the company will rely on how well it rolls out and administers Pre apps for the device.

"The Pre does give Sprint a halo product for the remainder of the year and an ideal opportunity to position itself as the value brand for data with its Simply Everything service plans. The Pre's user interface is ridiculously polished and it excels in multitasking and personal information management. There are a few memory and battery life issues, but nothing serious," Greengart wrote in a report, "Palm Pre Launch and Hands-On Analysis," published today.

"The App Catalog is largely bare, and filling it will be Palm's big challenge -- if it succeeds, Palm will be back for good. If not, Palm will be an attractive acquisition target for Dell, HP or one of the larger handset vendors."

In regard to how the Pre will impact the lucrative smartphone market, Greengart says there's room enough for Palm even if it doesn't overtake rivals Research In Motion and Apple.

While Palm may have made a mistake by not providing more inventory to capitalize on sales immediately, and may lose customers who don't want to switch to Sprint, these are obstacles that can be overcome.

"Palm is losing money. It needs product sales now, not just six months from now. ... Some of those waiting for the Pre to come to Verizon Wireless or AT&T will inevitably buy something else. Most importantly, Palm needs a strong launch to attract developers to the platform for it to be a contender over the long term," wrote Greengart.

"However, these are all temporary problems. One critical misconception is that the smartphone segment is static, and for Palm to succeed, Apple and RIM have to lose. Nothing could be further from the truth. It's not a zero sum game -- at least not at this stage of the market. The smartphone market is growing (despite the economy), and Palm just needs enough people to upgrade from a Sanyo, Samsung, Motorola or LG featurephone to the Pre instead of buying another featurephone or a competitor's smartphone. Palm can do that if it focuses on the areas where the Pre and webOS are clearly differentiated from its competitors: multitasking, information management (Synergy), and its user interface."

Greengart went on to say that the Pre will put some pressure on Apple and RIM when they roll out new handsets later this year.

Now that the upgrade of the iPhone SDK is reportedly filling in gaps in features and functionality, Apple needs more radical improvements. "The iPhone needs to be re-architected to allow true background multitasking without draining the battery or killing foreground performance. Apple must also respond to Palm's efforts with social network integration, Nokia's vision for turning mapping into a core UI construct, and Garmin-Asus' efforts embedding GPS coordinates into every phone process," said Greengart.

Meanwhile, in the short term, he says RIM (NASDAQ: RIMM) needs to improve its virtual keyboard experience and introduce a new device platform with both a touchscreen for navigation and a physical QWERTY keyboard for messaging. In the long term, RIM needs a new user interface design that isn't just a port of something designed for trackballs.

As for Palm, he recommends the company "target consumers who value Palm's differentiation around multitasking -- busy people, such as small business owners and parents managing multiple schedules and e-mail accounts."

Palm also needs to develop more multimedia partnerships as it continues to nurture the development community, as well as resolving battery life issues quickly and adding memory card slots and 16GB and 32GB models as soon as possible.

Ken Dulaney, an analyst at Gartner, said it will be difficult for the Pre to compete with the BlackBerry because the Pre's keyboard doesn't measure up and there's a lack of enterprise security. "The Pre also faces many challenges for widening distribution and expanding applications," Dulaney told InternetNew.com.